A consumer with an optimal credit rating of above 720 is afforded the lowest prices that lenders offer. While a credit rating in excess of this will not normally enhance the mortgage process, those with a credit rating below this will incur penalties.
Abstract (of Title)
A historical summary of all recorded transactions affecting the title to the property. An attorney or a title company reviews the abstract of title to ascertain whether any problems affecting the title to the property are present. Such problems must be cleared prior to the buyer obtaining a clear and insurable title.
A contractual provision allowing the lender to demand repayment of the entire balance of the loan if the borrower is in violation of one or more clauses in the note.
The addition to land by natural causes such as the forces of wind or water.
Interest that is earned but is not paid which adds to the amount owed. See Negative amortization.
A formal declaration before a public official (typically a Notary Public) that one has signed a document. It is required prior to the recording of real estate legal documents such as deeds of trust.
A unit of land measure equaling 43,560 square feet.
Adjustable Rate Mortgage (ARM)
A mortgage where the interest rate is adjusted periodically based on a pre-selected index. This is also sometimes referred to as a renegotiable rate mortgage or variable rate mortgage.
The time between changes in the interest rate or monthly payment on an ARM. This interval is often displayed in an x/y format, where x represents the period until the first adjustment, and y represents the adjustment period thereafter.
The length of time for which the interest rate on an adjustable mortgage remains fixed. If the adjustment period is six months, the interest rate will remain fixed for six months before adjusting.
An analysis performed of a buyer’s ability to afford the purchase of a home. It reviews your income, liabilities and available funds, and considers the type of mortgage you plan to use, the area where you want to purchase a home, and the likely associated closing costs. Affordability is generally conveyed in terms of the maximum price the consumer could pay for a house, and be approved for the mortgage required to pay that amount.
The legal requirement of one party in a relationship having a fiduciary commitment to the other.
Agreement of Sale
A contract that is signed by both the buying and selling parties stating the terms and conditions under which a property will be sold. It is also known as contract of purchase, purchase agreement, offer and acceptance, earnest money contract or sales agreement.
A categorization in determining mortgage risk falling between prime and sub-prime, but closer to prime. It is also often referred to as “A minus”.
An expedited and simpler documentation process designed to speed up the loan approval. In place of verifying employment and bank deposits with the applicant’s employer and bank, the lender will accept paycheck stubs, W-2s and original bank statements thereby saving time while allowing the applicant’s file to retain “full documentation” status.
A gradual loan repayment, which is divided into equal periodic payments calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.
A mortgage payment table, showing a breakdown by interest and amortization, loan balance, tax and insurance payments (if made by the lender) as well the balance of the tax/insurance escrow account.
The loan amount less the lender fees, which appears as “prepaid finance charges” paid at closing on the Truth in Lending form.
Annual Percentage Rate (APR)
The measurement of the full cost of a loan including interest and loan fees expressed as a yearly percentage rate. Because all lenders apply the same rules in calculating the annual percentage rate, it provides consumers with a good basis for comparing the cost of different loans. Under the Truth in Lending regulations lenders must report the Annual Percentage Rate.
An estimate of the value of property at a given date made by a qualified professional called an “appraiser”.
An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property.
Acceptance of the borrower’s loan application whereby the borrower meets the lender’s qualification requirements as well its underwriting requirements. If approval is provided quickly as with automated underwriting systems, it may be conditional to further verification of information provided by the borrower.
A local tax levied against a property destined for a specific purpose, such as a sewer or streetlights.
The transfer of a mortgage from one person to another.
A real estate sales method wherein the property buyer agrees to assume repayment responsibility for an existing loan on the property. However, unless the lender is also in agreement, the seller remains liable for the mortgage.
A mortgage contract allowing for, or not prohibiting, a creditworthy buyer from assuming the mortgage contract of the seller with no change in the terms of the loan. By assuming the loan, the buyer can save money if the existing loan rate is below the current market rate and, in addition, avoid closing costs. However, the lender may require the buyer to qualify for the loan and may also charge an assumption fee. If a loan contains a “due-on-sale” clause that stipulates the mortgage must be repaid upon sale of the property, is not assumable.
Attorney In Fact
One who is authorized to act for another in his/her stead under a power of attorney, which may be general or limited in scope.
See Lead-Generation site.
A person who is authorized by the original credit card holder to utilize the holder’s card. The cardholder is responsible for the charges of the authorized user, and the authorized user is not responsible for paying any charges, including his own. However, in cases of unpaid cardholder bills, authorized users may be sought for payment.
A computer-driven process for quickly informing the loan applicant, sometimes within a few minutes, whether the applicant will be approved, or if the application will then be forwarded to an underwriter. The quick decision is based on information provided by the applicant, which is subject to later verification as well as other information retrieved electronically such as the borrower’s credit history and the subject property.
Automated Underwriting System
A computerized workflow system designed to automate the underwriting process. Mortgage insurers and some large lenders have developed proprietary systems however; the most widely used throughout the industry are Fannie Mae’s “Desktop Underwriter” and Freddie Mac’s “Loan Prospector”.